Most prominent of the companies mentioned was Rockwood Holdings (ROC). The firm is the largest U.S. lithium producer and also the world’s biggest supplier of lithium-based products.

It’s one of only four companies that control about 90% of the global lithium market.

And it’s swiftly converting into a pure-play on lithium by selling its non-lithium divisions.

Massive Merger Deal Changes Everything

Now, Rockwood is the subject of a $6.2-billion offer by fellow specialty chemicals maker Albemarle (ALB).

For each Rockwood share, holders will receive $50.65 in cash and a 0.4803 share of Albemarle. This is the industry’s largest deal to date.

The combined company expects to grow at a fast pace – starting with Rockwood’s lithium-based products.

It’s next avenue of growth would be driven by Albemarle’s preeminence in the refinery catalyst market, surface treatment products for the aerospace and vehicle markets, and offerings in bromine for the offshore drilling and emission control markets.

Then Albemarle is to extract as much as 20,000 tons of lithium from its bromine salt ponds in Arkansas.

Albemarle expects the merger to close in the first quarter of 2015. It also expects the deal to be accretive to cash earnings from the first year and going forward.

Ironclad Logic Behind the Deal

The logic behind the deal for Albemarle is very simple…

Consumption of lithium doubled in the 10 years leading up to 2012. And it’s growing at an even quicker pace now. Lithium sales are expected to double again by 2017, and once more by 2020.

The gain will be powered by electric vehicle batteries. (Think Tesla’s $5billion Gigafactory, which can double the current production of lithium-ion batteries.)

The Gigafactory is forecast to consume the equivalent of 17% of current lithium output.

However, even if electric vehicle sales are slower than expected, lithium is still a growing industry. Most of Rockwood’s nearly half-billion dollars of lithium sales last year went to other industries, including pharmaceutical, chemical, and agriculture.

But the real prize behind this deal is the expected boom from Tesla’s Gigafactory. If other chemical companies are as bullish as Albemarle is, don’t be surprised if some of the world’s giant chemical firms launch a counteroffer for Rockwood.

And “the chase” continues,

Tim Maverick

Tim Maverick boasts decades of experience in the investment world. He spent 20 years at a major brokerage firm - as a trading supervisor and broker working directly with clients. Learn More >>

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